Employment & Pensions Blog: Government introduces a new Growth and Skills Levy to replace the Apprenticeship Levy

The Government has announced that the Apprenticeship Levy will be replaced by a new Growth and Skills Levy.

As part of its wider strategy to boost economic growth by investing in skills, the Government suggests this new levy will be more flexible and better tailed to the evolving needs of businesses - especially those dealing with skills shortages. 

What is the Apprenticeship Levy? 

The Apprenticeship Levy was introduced in April 2017 to increase the quality and quantity of apprenticeships across the country. It requires larger employers with an annual pay bill of over £3 million to contribute 0.5% of their payroll into a pot that is then used to fund apprenticeship training. The objective of the Apprenticeship Levy is to encourage employers to invest in apprenticeships and upskilling, whilst at the same time giving them greater control over how funds are spent on training. 

Nevertheless, over the years the levy has faced a number of criticisms, which have limited its effectiveness in achieving its objective. The major criticism of the levy has been its inflexibility, with employers expressing their frustration that the funds can only be spent on very specific types of training, and only on courses that last longer than a year. This has resulted in many businesses feeling restricted and unable to use the funds to train their workers. As a result, the previous Conservative Government was under pressure from businesses to reform the system by making it more adaptable and responsive to the needs of employers in the current economy.

The Growth and Skills Levy

Whilst full details of the new Growth and Skills Levy are yet to be announced, it is expected to focus on funding for those at the beginning of their careers, with the Government’s announcement referring to ‘young people’ specifically. 

Businesses will be required to rebalance their funding to focus on younger workers. Level 7 apprenticeships, equivalent to a master’s degree, will now need to be funded by businesses out of their own pocket, rather than using levy funds. The Government’s reasoning is that this level of qualification is usually taken up by older already well qualified workers. Whilst that may be the case, the Growth and Skills Levy being focussed on ‘young people’ could make it more difficult for individuals to retrain or change careers later in life. In a world of Artificial Intelligence and disappearing job roles, this could impact people as well as growth in the wider economy.       

However, in positive news, the new Growth and Skills Levy will address the criticism of the current system that restricts levy funds to only training that lasts 12 months or more. Under the new system businesses will be able to use levy funds for shorter apprenticeships, which will be welcome news for employers, as it will give them greater flexibility over the type of training.  

In response to these criticisms, the Government has been under pressure from businesses to reform the system, making it more adaptable and responsive to the needs of employers in the current economy. 

There remain many unanswered questions about how exactly the new system will operate in practice. The Government has suggested that The Department for Education will set out further details of the scope of the offer and how it will be accessed in ‘due course.’ For now, businesses should prepare for how the changes could impact their training strategies and levy contributions. 

If you require further guidance on the upcoming Growth and Skills Levy, please contact a member of our Employment Team.